US consumer sentiment grim, but retail sales jump

US consumer sentiment worsened sharply early this month, falling to the lowest level in more than three decades, after retail sales posted the biggest gain in four months last month.

High unemployment, stagnant wages, gridlock in Congress, and a stock market slump all contributed to a consumer mood that was as grim as when Jimmy Carter was US president during the recession of 1980 and interest rates were higher than 20 percent.

Despite the gloom, US consumers kept spending in recent weeks, with retail sales up last month by the most in four months.

“People’s spending doesn’t always correspond with their mood,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. “I doubt things are as weak as the sentiment readings suggest, but no doubt people will be cautious in August.”

After one of the most volatile weeks in memory, US stocks ended higher on Friday as the encouraging retail sales data overshadowed the weak consumer sentiment data.

However, “the tumultuous last 10 days or so hasn’t given our core customer, the middle income family, any reason to be more confident,” J.C. Penney Co Inc CEO Myron Ullman said during a analysts conference call on Friday morning after the chain store retailer forecast weaker-than-expected third-quarter earnings.

The preliminary reading on the consumer sentiment index fell to 54.9 early this month, down from 63.7 last month, and the index has fallen for three straight months in the Thomson Reuters/University of Michigan survey.

Unemployment at 9.1 percent of the workforce, low wage rises and the protracted debate in Congress over raising the US government debt ceiling spooked consumers, survey director Richard Curtin said in a statement.

“Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role,” Curtin said.

“This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent. It was the realization that the government was unable or unwilling to act,” Curtin added.

Bad economic times were expected by 75 percent of all consumers surveyed early this month, just below the all-time peak of 82 percent in 1980. Buying plans for household durables and vehicles declined early this month, falling back to their recession level lows.

“There is no doubt that American families are having difficulty,” Ullman said.

Furniture sales in the second quarter were down 20 percent from a year earlier, Ullman added.

The current gloomy consumer sentiment suggests restaurant sales will slip as fall approaches, according to the Kurt Salmon’s Restaurant Spending Trajectory report.

Despite the decline in consumer confidence in recent months, US retail sales last month posted the biggest gain since March, tempering fears the world’s largest economy might be slipping back into recession.

The 0.5 percent increase in retail sales reported by the US Department of Commerce was in line with analyst forecasts and followed an upwardly revised 0.3 percent gain in June.

Consumer spending accounts for two thirds of US economic activity and the data indicates the third quarter was off to a decent start.